In Vancouver: The affordability/amenity balance

Are developer contributions adding a public benefit, or driving up uncertainty and costs for Vancouver homebuyers?

This morning I participated in a workshop organized by the Downtown Vancouver Association to discuss housing affordability and amenity in the downtown. In advance of the session Jeff Lee called me to find out what I might be saying. I told him.

He then contacted Andrea Reimer who was also on the panel and she shared her views. This has led to extensive conversations on Twitter and Frances Bula's blog with many people disagreeing with my assertion that Community Amenity Contributions paid to the city are passed on to consumers. (I might add that I have not yet heard one developer who disagrees with this claim.)

Nonetheless, I felt compelled to share some further thought on Frances Bula's blog, and for the few people who are interested in this topic, and don't read Frances' Blog, here is what I wrote —

The concerns I have with CAContributions that are calculated based on estimated ‘land lift’ at the end of the rezoning process are as follows:

While one would like to think that the amount of the CAC would be factored into the amount paid for land, the amount of the contribution is generally not known when one buys a piece of property. And as one well known appraiser said to me …Michael, as long as you have the right appraiser on board, you should be ahead of the game.

I don’t like a system where the amount of the contribution can be tied to which appraiser is on board, or how effective a negotiator you are.

If anyone wants to suggest the amount of the CAC that is ultimately paid is not a matter of having the right appraiser, or your negotiation skills, you are either naive, or deluding yourself.

Michael Flannigan advised me that the CAC/DCC’s received by the City from rezonings have been working out to about $40 a foot buildable. That is not an insignificant amount. As Jeff Lee noted in his story, the city has generated a lot of money from these payments.

(As an aside, why hasn’t this money been spent on additional childcare facilities…they are really needed…almost everywhere except in the downtown where the city has negotiated quite a few childcare facilities as part of the CACs. But that’s another story.)

I am not suggesting that the CAC’s are the main reason for the high price of housing in Vancouver, but I stand by my contention that the payments to the city do generally get passed on to buyers…they are not all absorbed in a reduced land payment. If you don’t believe me, you are either naive or deluding yourself.

There are other problems with the current system. Firstly, it inadvertently encourages a municipality to improperly zone land, so that a developer will come forward and play “Let’s make a deal”. Some developers like to play this game…and play it very well…but most don’t want to take a chance and therefore go to Burnaby or Coquitlam or Richmond where they think they have a better chance of winning. If you don’t believe this, you are either naive or deluding yourself.

Another problem with this approach, and this should be of concern to neighbourhood groups, is that there is an incentive for a municipal government to rezone land to higher and higher densities, just to get the additional amenities, or the money. Increasingly, the city of Vancouver is asking for the cash. I know that Brent and others will tell you that this would never happen, but if you believe that, you are either naive or deluding yourself.

So to summarize, as a number of people mentioned at this morning’s DVA discussion, the city has become somewhat addicted to the CAC payments that arise from rezonings.

What I told Jeff Lee is that there is a need to balance the affordability/amenity equation. I believe the best way to do this is to increase the supply of suitably zoned land, and establish predetermined CACs/DCCs. Don’t force developers to go through a rezoning during which time the amenity contributions are negotiated.

Also at this morning’s discussion, one prominent member of the Mayor’s Task Force told me the City does what it does because it would need a charter amendment to establish across the board CAC’s/DCC’s. If that’s the case, then seek the amendment.

The city should also look to other ways of financing growth and amenities. There are many lessons to be learned from the past. Yes, these will spread the cost across a larger population, and over a longer time period, but it may be worth it.

Finally, a more certain process will increase the number of developers coming forward to build in the city. Now, this may not be so good for those developers who are doing so very well under the current system, or the real estate and development consultants who guide projects through the system…(remember, I used to be one of them!) But ultimately it will create more certainty, that will lead to more competition.

If you don’t believe me, just go over to the UDI office and have a quiet chat with some of the people who work there. They’ll tell you how they often hear from developers who tell them they work outside of Vancouver, rather than in the City, because the Vancouver City process is too uncertain.

About the author: Michael Geller

Michael Geller is a Vancouver-based architect, planner, real estate consultant and property developer with four decades’ experience in the public, private and institutional sectors, and President of the Geller Group. He is a fixture in Metro Vancouver media on these topics, and is a weekly civic affairs panelist for CKNW's Bill Good Show.

11 Comments

PeteApril 24 at 10:11 pm -

I’d be curious to find out three things: first, the annual growth in Community Amenity Contributions demanded from developers over the last two decades, measured in dollars/square foot of development and total dollars raised annually by the city.

Second, annually over the last two decades, what proportion of this money was actually spent on community amenities such as parks, libraries, community centres, swimming pools, etc. Or, if that’s not available, the total amount per resident spent by the city on these amenities each year.

Third, the city’s operating deficit each year over the same two decade period.

Here’s my thesis: if the city is running bigger and bigger operational deficits (the cause of which is another discussion) and can’t raise property taxes significantly, developers are the easiest source of cash. So the city plays games with zoning and height restrictions, then demands massive CAC payments…not to actually build amenities, but to balance their budget. The developers end up building taller structures with smaller suites than anyone really wants and selling them at higher price points in order to earn a decent profit. So you end up with the worst of both worlds: more people crammed into a given neighbourhood, but without any additional amenities to serve them.

“CAC – Is IMHO, an acceptable, subtle… form of bribe and/ or a blackmailing tool! Depending on whose side you’re on.”

Like…”Here’s my $20 Officer! Could you keep an eye on my car that’s parked in front of the Fire Hydrant, for me!?”
Yeah, right! As if one picture with the Queen would do for a man of the law!

Anyways, I really liked the picture, as it shows two of my favorite architects, Richard Henriquez (far left back row) and Jim Hancock (middle, grey shirt, kinda’ bored), together with my favorite planner ever… Ralph Segal (left, front row)… right in the middle of a rezoning of a huge Vancouver project.

Let’s see what the CAC amenities for this project… 1290 Burrard Street and 1281 Hornby Street … were:

The proposed community benefits of Burrard Gateway Vancouver real estate development proposal includes the following:

If anyone reading the above doesn’t have the foggiest idea what this means, please stray away from cutting a multi-million dollar cheque *wink to purchase redevelopment land in the City of Vancouver… that goes for those “developers” Mr. Geller who also apparently do not have the foggiest idea on how to value land.

Someone, ohhhh someone must understand the simple two-step equation. Wait….yup just wait….it’s coming to me….. a few ideas:

Lets add another element to the oh so magical CAC calc. Before and after value is negotiated, hence ineveitably the value ends up below “market” on a psf buildable basis. The City then takes 70-80% of this value. Pretty nice discount over market for a rezone.

To fully understand all the issues surrounding the CAC & DCC topic one needs a sizable, anti-fog crystal ball. The current system is a crap shoot for the developer in the COV. The above stated regions (Burnaby, Richmond etc) are far easier to deal with but yet each has their own dynamics and some are well sketchy at best.

The inevitable question of value for the taxpayer always brings STIR back to my thought process, and how this program wasted many chances to do something for the better good of all folks not just a few pet developers. The capital costs involved in development should never be reduced, as long as we live over out dated infrastructure (like the antiquated piping under parts of the West end).

Suffice it to say, I have to agree with Mr.Gellar on most of the facts listed above. The COV is not in fact open for business and one is never sure of any rules or timelines when dealing with the contradiction that has become the COV!

Steven ForthApril 25 at 7:59 am -

More transparency and predictability would surely be a good thing. Developers work hard to game the system and the city responds. But if you think that Vancouver developers will willingly invest in amenities that are an important part of our social fabric you are either naive or deluding yourself.

The power of developers and the role development has played in the Vancouver econmy over the past decades means that the city is largely run in their interests. Perhaps we are not really so different from Phoenix AZ.

Paul HApril 25 at 9:17 am -

“Developers work hard to game the system and the city responds.”

I think that is backwards where CACs are concerned. The City puts the game in place and Developer’s learn to play. Municipalities that don’t have the same CAC policy, generally have more developers playing in their sandbox.

Paul HApril 25 at 9:02 am -

@becauseIamintheknow:

I don’t think anyone in the development industry would argue your point about a select few having the horse power to game the system. That is in part, Michael’s point – the CofV has created a situation where a limited number of developers can afford to play the game and consumers rarely win when there is an oligopoly. If the CofV was to be more transparent with the process or clear on the number, there would be more competition which would favor the consumer.

I would also like to second Michaels’ assertion that these CAC costs are at least in part passed on to the consumer for the simple reason than land prices don’t move nearly as quickly as RLV calculations do. In simple terms, a land vendor will often use the last sale price or the “going rate” per ft2 for land which will not match the $/ft2 that spits out of the proforma for land value when an assumptive CAC is used. Some will argue that the market will set the price and developers don’t have that level of control to set the price or push additonal costs. In most areas they would be right – but in an area like CofV where the number of developers is limited, that isn’t the case. Pushing the price $40/fts is possible. Even the CofV thought that possible with cost overuns at OV – just add it to the sale price.

BecauseimintheknowApril 25 at 9:43 am -

Lets get something clear. Developers listed above don’t play in Vancouvers sand box because they understand CAC calcs. They do so because they have the financial means to acquire and finance redevelopment opportunities in one of the worlds most land constrained and expensive cities.

Eg. Langley… A different economic story thus more medium to smaller sized players.

@becauseimintheknow.
You have missed many others on your list. I think maybe these are the ones who interfere with your personal agenda may be the reasons for listing these companies.
You are totally not on a roll, your errors are by omission, there are many more developers with similar stakes in the planning/zoning/admin fiasco known as the Cov. The only sure thing is the CAC’s & DCC’s will be born by the property purchasers and always have. To deny this fact would be to question the solvency of all the above mentioned businesses. Rest assured they are mostly doing fine.

Michelle S of Mt PleasantApril 25 at 11:35 pm -

What I would like to know is there any documentation held by City Hall that proves where and when these CAC’s are allegedly distributed in the communities?

I would like to see where, especailly cash CAC’s, are used to create these community ammenities that they are supposedly funding seeing how community input is not part of the process as explained by a Planning staff member during the Rize Alliance Development Public Hearing.

Just curious to learn if there is a paper trail of accountability or not.